Study: Pure Open Source Is Not a Business Model

According to a recent study by the 451 Group -- an independent technology industry analyst company -- the pure, non-hybrid open source is, apparently, not a viable business model.
Addressing the ever-so-popular question of how to make money from something that’s in its foundation free, the analyst company assessed the development, licensing and revenue-generation strategies used by open source.
At the same time, we’ve noticed that software giants like Microsoft started playing friendly in the open
source space. In addition, CMS vendors like eZ and Alfresco report that open source can be profitable.

Official Take on the Report

The group attempted to assess the impact that open source license choice, development model, vendor licensing strategy, revenue triggers and sales models have on each other to determine the overall open source business.
With adoption of the open source development and distribution model by many vendors, some of the assumptions about open source software have taken a back seat to commercial reality.
For example, the idea of a community of individuals sharing the code around an open source platform “for the greater good” has been superseded by the image of a community of vendor employees sharing the code to increase code quality and lower production costs.
Another outdated idea is the one that the only way of generating revenue from open source software is through specialist vendors that generate revenue through providing support services.
Apparently, this is not the only way to make money from open source software.

Blog Take on the Report

The 451 Group blog mentions Matt Asay, one of the proponents of open source software, as to how he changed his position on the use of proprietary extensions in an effort to attract paying customers to open source software.
Asay, who previously advocated a 100% open source approach, says that “If adding a hint of proprietary software to a solution is done in such a way to encourage a purchase but not compel long-term lock-in, I’m no longer convinced that this is wrong. If it puts food on the table without putting anyone out, where is the harm?”
So, is the use of proprietary add-ons and plug-ins is the way to survive in the land of the free --a.k.a the open source land?
The 451 Group’s latest report is based on the analysis of business strategies of 114 open source-related vendors, including Red Hat and Alfresco. In addition to that the group considered such vendors as IBM and Oracle, under the pretences of them being mostly proprietary vendors. The researchers say they realize that including the latter might disproportionately influence the results, “so we also filtered the findings to include only those vendors that could be considered “open source specialists”.
As for the overall conclusions, the blog says that:
* Open source is a business tactic, not a business model.
* Open source is not a market in itself, nor is it a vertical segment of the market.
* Open source is a software development and/or distribution model.
* “The cat is already out of the bag,” when it comes to open source-related business models.
* There is very little money being made out of open source software, of there’s no additional support from proprietary code and services.

Open Source Industry Revelations

According to the gospel of the 451 Group, these are some of the most interesting findings:
* The majority of open source vendors utilize some form of commercial licensing to distribute or generate revenue from open source software.
* Half the vendors assessed are using hybrid development models of free and commercially licensed software.
* Vendors using hybrid development and licensing models are balancing higher development and marketing costs with the ability to increase revenue.
* The license used for an open source project (reciprocal or permissive) has a strong influence on development, vendor licensing and revenue-generation strategies.

The Tale of Open Source Licensing

The researchers looked at different business strategies and business models used by open source vendors. The vendors were assessed based on the licensing approach (reciprocal or permissive), development model, vendor licensing strategy (e.g. dual licensing, open-core licensing) and revenue generation triggers (e.g. commercial licensing, subscription, support services, other products).
As a result, the analyst firm came to a conclusion that open source as a business model is nothing but an oversimplification. Instead, there are more than 80 different combinations of development models, vendor licensing strategies and revenue triggers being used today by the vendors analyzed.

Busting Those Open Source Myths

In addition, the report also attempted to bust some of the open source-related myths, such as the idea that open source vendors are reliant on ad-hoc support services, and that open source eliminates the need for direct sales. On the contrary, the group reports that:
* Ad-hoc support services are used by nearly 70% of the vendors assessed, but represent the primary revenue stream for fewer than 8% of open-source-related vendors.
* Most vendors generating revenue from open source software are reliant on direct sales staff to bring in the largest chunks of revenue.

Blurring the Lines

One of the most interesting thoughts in both the blog and the report is the idea of blurring the lines between proprietary software and open source software. Allegedly, as open source software is being embedded in proprietary hardware and software products, more and more customers are attracted to the proprietary extensions.
The fact and the matter is that there are very few vendors generating revenue from open source software, when they follow the purist approach of offering code and licensing of all of their software under open source licenses.
The full report is available for purchase. An executive summary (PDF) is also available.

Microsoft as an Open Source Player?

Microsoft isn’t exactly famous for championing the open source projects. Lately, though, things have been shifting in a rather opposite direction. The company recently released the Microsoft Web Platform Installer, which makes it possible to batch install a set of open source projects on Windows Vista or Server 2008.
These include some of the most popular open source CMS, such as DotNetNuke, Drupal, Gallery, Graffiti, osCommerce, PHPBB and WordPress. As InfoWorld points out, Microsoft itself isn’t technically distributing these open source applications. It is up to the users to obtain them from third-party developers through Microsoft’s new installer.
The platform can run both ASP and PHP-based applications and comes with Visual Web Developer, Microsoft SQL Server and IIS7. Altogether, this package of open source offerings looks like a smart way for Microsoft to support open source through its own software over rather than leaving it to other popular open source alternatives like Apache and MySQL.
And this is in addition to the latest release of Silverlight 2 and support for advanced Silverlight development capabilities with the Eclipse Foundation’s integrated development environment (IDE) in order to provide new controls to developers with the Silverlight Control Pack (SCP) under the Microsoft Permissive License.
Microsoft funded Soyatec, a France-based IT solutions provider and Eclipse Foundation member, to lead the integration of advanced Silverlight development capabilities into the Eclipse IDE. A technology preview of the Soyatec project is available at http://www.eclipse4sl.org. A complete version should be available in second half of 2009.
Soyatec plans to release the project under the Eclipse Public License Version 1.0 on SourceForge and submit it to the Eclipse Foundation as an open Eclipse project.

Profitable Open Source CMS? It’s eZ, Open-Air Breezy

As we’ve reported earlier, eZ Systems’ open source Web CMS -- eZ Publish -- has raked up an impressive triple-digit growth and double-digit renewal rates for the first half of 2008.
This was the first time eZ Systems achieved a profitable bottom line. It took 8 years and more than $US 10 million of investments. But, as we can see, a profitable open source CMS is not a dream. Granted, a big part of eZ’s financial success can be attributed to monetizing support and maintenance.
This is not to mention the success of another open source vendor Alfresco that recently released Alfresco Labs 3, a SharePoint-compatible repository; a social networking application Alfresco Share; and Alfresco Surf, for REST-oriented Web development.
Alfresco makes its CMS available at no charge under the General Public License, while charging fees to companies that want professional support and an enterprise version of its platform. The company has about 600 paying customers, and its revenue jumped more than 100% in its last quarter.
While Alfresco doesn't publish support prices on its Web site; supposedly, it costs about one-third of a SharePoint implementation to get Alfresco going.

Time Will Tell

With so many conflicting opinions about the current and future state of open source, we can only rely on time to see if the strongest survive, and if there’s any financial merit to open source as a business model.
From what we’ve seen so far, the Group 451’s conclusions (although, not necessarily popular) are mainly true and reflective of what’s going on in the open source industry right now. As to the future -- time will tell. In the meantime, feel free to share our opinions with us. What do you think?

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